The Shadow Exchanges Gather Their Forces

This is croney capitalism at its worst. There is one 'secret' market for big players to trade where they do not have to report the price or volume and another retail market where the small players show their cards and their orders up front. We do not have a huge problem with this as long as the trade and specific print publicly as soon as the trade is consummated. Are they? How do we know?

Still, this puts the retail investor/trader at a significant disadvantage to a few insiders who can 'see' the dark pool action, Level III quotes if you will, and use it to front run the slower and less informed retail exchanges.


Goldman, UBS and Morgan Stanley agree on dark pools
Tue May 20, 2008 9:24am EDT

NEW YORK (Reuters) - Goldman Sachs, Morgan Stanley and UBS said on Tuesday they will allow their clients to access each other's non-displayed liquidity pools, known as dark pools, in an effort to increase chances of trading orders being filled.

The agreement will allow algorithmic trading orders from each firm to tap into the additional liquidity offered by competitors' darks pools, including Goldman Sachs' SIGMA X, the largest single-broker dark pool, Morgan Stanley's MS POOL and UBS' PIN ATS.

Dark pools now account for some 10 percent of equities trading in the United States, according to New York-based consultancy TABB Group and have proliferated as investors seek to place larger orders without showing their hand to the market and risk adverse price movements.

In a statement, Morgan Stanley's managing director of electronic trading said, "These arrangements will enable us to work with trusted industry participants to deliver the same level of confidentiality our clients have come to expect from us."

(Reporting by Phil Wahba, editing by Dave Zimmerman)


Here is an earlier blog entry on the nature of these off exchange dark pools: Shadow Exchanges for the Shadow Financial System: Dark Pools